The Debt Settlement Situation in Canada
Debt settlement agencies have been the focus of consumer alerts from the Financial Consumer Agency of Canada (FCAC) warning consumers to beware of “too good to be true” offers from debt consultants and debt reduction companies.
What You Need to Know
Debt settlement agencies offer to help you settle all of your credit card debt, as well as other unsecured debt, with claims of up to 70 percent savings on the total amount of money you owe. These companies are known for:
- High-pressure sales tactics.
- Charging large up-front fees before any action is taken.
- Describing their services in hard-to-understand contracts.
- Providing misleading information about the impact on your credit report and credit score.
- Making false claims that debt settlement companies are somehow linked to the government.
This process can create a high degree of risk for consumers, who are open to abuse by companies interested in only collecting up-front fees while leaving consumers to deal with disgruntled creditors, most of whom are not interested in waiting years to accept a pennies-on-the-dollar settlement.
You Are Protected
For example, in Ontario The Stronger Protection for Ontario Consumers Act creates new standards of conduct for debt settlement agencies by:
- Banning up-front fees. Payment of fees before services are provided has been prohibited.
- Placing limits on the amount of fees that can be charged to consumers.
- Requiring clear and detailed contracts with specific information. For example, the effect of the debt settlement on the consumer’s credit report and score must be disclosed.
- Establishing a 10-day cooling-off period, which gives consumers more time to consider their options and how the agreement will affect them.
- Allowing the business licenses of non-compliant companies be revoked.
2013 Abusive Practices Ruling
In spring 2013, Ontario’s Ministry of Consumer Services introduced legislation with tough measures to protect consumers from unfair business practices surrounding what’s called “debt settlement services” (also known as “debt reduction,” “debt relief” and “debt negotiation” in advertising sales pitches).
The Stronger Protection for Ontario Consumers Act passed on November 27, 2013. We congratulate the Government of Ontario for taking this important action to protect vulnerable, indebted consumers against the abusive practices of some debt settlement agencies.
How Debt Settlement Services Differ From Credit Counselling
Unlike debt settlement services, not-for-profit credit counselling services across Canada offer time-honoured Debt Management and Consolidation Programs which take a thoughtful, realistic approach to debt solutions.
Credit counselling agencies are also recognized for exemptions under provincial legislation. Debt settlement companies are not.
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